By: Tim Schjerning

When you reach an agreement with someone that involves an exchange of benefits, you are likely entering into a contractual relationship with that individual. It does not matter whether a written contract has been signed. So long as there is an exchange of something of value (e.g. work for compensation), the law will establish a legally binding contract. Contracts may be oral or written: either form is valid.

However, with employment contracts the law has developed to “imply” certain terms in order to afford greater protections to employees.[1] Without employment contracts in writing, courts will use these implied terms to interpret the contract.

These implied terms are vague, and rely on courts to determine what exactly has been implied in particular contracts. As a result, it is advisable to have a written employment contract in most employment relationships so that all parties clearly understand their rights and obligations under the contract.

Implied Terms

Implied terms are parts of a contract that, while not expressly written into the agreement, are “implied” to exist. This means that courts will “read in” terms to certain contracts, such as employment agreements, to protect vulnerable parties.[2]

Implied terms are generally more favourable to employees. Termination is one major area where this dynamic occurs. The law implies that all employees are entitled to reasonable notice of termination, assuming there was no “just cause” for termination.[3] Reasonable notice means that employees must either be told in advance of their termination that they will be dismissed, or must receive payment to reflect the time they would have worked with notice.

These implied terms for termination grant significantly more reasonable notice compared to statutory minimums. This means that without a written termination clause in the contract limiting termination entitlements, employees will receive greater reasonable notice. [4]

MyOpenCourt’s Termination Compensation Calculator can help assess how much notice an employee may be owed at either common law or the Employment Standards Act (ESA”) minimums.

Removing Implied Terms

In order to navigate around these implied terms, employment contracts may be drafted that agree to remove some of these terms in exchange for new provisions. Basically, implied terms may be removed with express terms, with some important limits.

In Ontario, the ESA sets the minimum standards of employment contracts. Courts have been firm that employers must draft employment agreements that comply with the ESA. If any express term of the employment agreement falls below the ESA minimum standard, then implied terms will be used to assess the employment relationship.[5]

Typically, ESA minimum standards are considered to be the “floor” for what you may agree to, with implied terms being the likely “ceiling.” Written employment agreements may agree to any terms within these ranges.

What This Means For Employers

As an employer, you should always look to have written employment agreements signed when hiring new employees.[6] Without contracts in writing, it is very likely that courts will use implied terms to assess the employment agreement, with terms being generally favourable to the employee. Written employment agreements will help to bring certainty to the employment relationship, so long as the ESA is followed.

Drafting employment contracts that both expressly waive implied terms while still complying with the ESA can be tricky. Always consider contacting legal counsel if you encounter any difficulties, or want to ensure your employment contracts are properly drafted.

What This Means For Employees

As an employee, the law is designed to help protect you against power imbalances between you and your employer. However, there is still value in signing a written employment contract with your employer when you are hired. Written contracts help bring certainty to your job, and can help to clearly understand your rights and obligations without needing to consult other sources. Additionally, implied terms are determined and enforced by courts, meaning that any disagreements on implied terms must be resolved through litigation.

Finally, remember that as an employee, you do not have any obligation to ensure that the employment agreement is legally drafted: that is the responsibility of your employer. However, if you have any questions or concerns with your written employment agreement, consider contacting legal counsel before signing. Legal counsel may help you to understand your rights and obligations prior to entering the employment relationship.

[1] See Machtinger v HOJ Industries Ltd, [1992} 1 SCR 986, [1992] SCJ No 41 (“Machtinger”).

[2] See London Drugs Ltd v Kuehne & Nagel International Ltd, [1992] 3 SCR 299, [1992] SCJ No 84; Machtinger, supra note 1; Bhasin v Hrynew, 2014 SCC 71.

[3] See Bardal v Globe and Mail Ltd, [1960] OJ No 149, 24 DLR (2d) 140.

[4] Common law reasonable notice is typically quite generous, and is roughly estimated as equalling one month of notice for each year employed. Comparatively, the statutory minimums for notice in Ontario’s Employment Standards Act, 2000, SO 2000 c 41 (“ESA”)are calculated using one week of notice for each year employed, up to a cap of eight weeks notice. As a result, common law notice can grant significantly higher notice entitlements.

[5] See Machtinger, supra note 1; Waksdale v Swegon North America Inc, 2020 ONCA 391.

[6] It is important to remember that a written contract must be signed before an employee begins working. If no contract is signed before work begins, then it is likely that implied terms will be used instead. A written contract may still be signed during employment, so long as the employee agrees to it and receives something like a signing bonus as consideration.